ARCHIVED -  Telecom Decision CRTC 95-10

Telecom Decision

Ottawa, 26 May 1995

Telecom Decision CRTC 95-10

NEWFOUNDLAND TEL - PHASE III MANUAL: COMPLIANCE WITH PUBLIC NOTICE 94-43 AND ORDER 92-1456

I BACKGROUND

On 30 September 1994, Newfoundland Telephone Company Limited (Newfoundland Tel) filed its Phase III Manual for the Commission's approval, together with an initial set of unaudited results for the calendar year 1993 and two copies of its accounting manual, in accordance with Order and Guidelines for the Filing of the Phase III Manual by Newfoundland Telephone Company Limited, Telecom Order CRTC 92-1456, 5 November 1992 (Order 92-1456). Pursuant to that Order, Newfoundland Tel also attached reports on Revenue/Cost Matching, Access Studies and Official Telephone Service (OTS).

Newfoundland Tel's report on Revenue/Cost Matching received interim approval in Telecom Order CRTC 94-1418, 6 December 1994.

In its report on Access Studies, Newfoundland Tel outlined its view of the items to be resolved in the development of Access sub-categories, the relative priority of individual items requiring detailed definition, and its views concerning the operational aspects of the Detailed Definition Process (DDP).

In its report on OTS, Newfoundland Tel qualified the reliability of the data employed in its OTS adjustment. The company acknowledged that work is required to improve procedures and records related to OTS, and noted that a special team had been set up in that regard. The company added that all recommended improvements are expected to be reflected in the calculation of 1995 OTS adjustments.

In Newfoundland Tel - Phase III Manual, Telecom Public Notice CRTC 94-43, 7 October 1994, the Commission directed Newfoundland Tel to serve a copy of its Phase III Manual and unaudited 1993 results on interested parties. On 9 December 1994, Unitel Communications Inc. (Unitel) filed comments with respect to the Manual and the related reports, addressing the following issues: (1) the application of the directions in Review of Phase III of the Cost Inquiry, Telecom Decision CRTC 94-24, 18 November 1994 (Decision 94-24); (2) the treatment of outside plant fibre investment (BSCC 2.011); (3) details regarding the method of mapping reported time to Broad Service Categories (BSCs) in assigning sales expense (BSCC 6.029); (4) the mapping of accounts to the operating expense categories reported in the Statement of Revenue Surplus/Shortfall; (5) the accuracy of OTS records; and (6) the 1993 shortfall in the Competitive Network (CN) category. Newfoundland Tel filed its reply on 6 January 1995.

II CONCLUSIONS

Newfoundland Tel's Phase III Manual sets out detailed procedures for the assignment of all of the company's revenues, investments and expenses to BSCs and reporting categories. The Commission examined each individual procedure in Newfoundland Tel's Manual for compliance with the general and specific requirements of the Guidelines established in Order 94-1456.

With regard to Unitel's submissions, the Commission notes that the directions in Decision 94-24 applicable to Newfoundland Tel relate to the production of 1994 Phase III results. For the purposes of producing 1994 results, Newfoundland Tel is to update its Manual accordingly.

Unitel regards Newfoundland Tel's treatment of outside plant fibre investment (BSCC 2.011) as deficient, in that it does not include a weighting factor for distance. However, the Commission notes that Newfoundland Tel's procedures are consistent with those used by Bell Canada (Bell), BC TEL and Maritime Tel & Tel Limited (MT&T), and are documented in the Stentor Settlement Plan (SSP). The Commission addresses this issue further in AGT - Phase III Manual: Compliance with Public Notice 94-41 and Order 93-20, Telecom Decision CRTC 95-9, 26 May 1995.

Unitel suggested that Newfoundland Tel provide a table mapping expense accounts from its accounting manual to the operating expense categories reported in the Statement of Revenue Surplus/Shortfall. The Commission notes Newfoundland Tel's reply that such a table would duplicate a significant amount of information already contained in the Manual and that it would be time-consuming to develop. The detail requested by Unitel has not been required in any of the other Phase III Manuals approved to date by the Commission and, in the Commission's view, is unnecessary.

Concerning Newfoundland Tel's Sales Expense study (BSCC 6.029), the Commission agrees with Unitel that the company's Manual documentation should be expanded. The Commission is therefore directing the company, below, to provide further detail with respect to the method used to map reported time to BSCs. The Commission does not consider it necessary, however, for the company to include the instructions and guidelines provided to its employees in this regard.

With respect to the accuracy of Newfoundland Tel's OTS records, the Commission notes that the company has begun to implement improvements, which will be completed for the production of 1995 results. The Commission finds Newfoundland Tel's OTS plans reasonable, but considers that the company should file a status report identifying the improvements made to date and stating the company's views as to which, if any, of these improvements could be adopted for the study year 1994.

Unitel stated that Newfoundland Tel should be directed to provide an explanation of the steps it plans to take to correct the deficit position of the CN category. The Commission notes that deficits exist in both the CN and the Competitive Terminal - Multi-line and Data (CT-MD) categories. Accordingly, below, the Commission is directing Newfoundland Tel to submit a report on the specific steps being taken by the company on a going-forward basis to ensure that the CN and CT-MD categories do not remain in a shortfall position.

Having examined Newfoundland Tel's Phase III Manual, the Commission finds the procedures in it to be in compliance with Order 92-1456, with the exception of the items listed in the Appendix to this Decision. The procedures identified in the Appendix appear to represent alternative assignment approaches and revenue classifications, and the Commission requires further information with regard to them. These items, and the additional information required, are detailed in the Appendix.

In light of the above, the Commission approves Newfoundland Tel's Phase III Manual, subject to the resolution of the items noted in the Appendix.

In addition, the Commission notes that Newfoundland Tel's Manual reflects the tariffs, accounts and procedures used to produce 1993 results. In the Commission's view, the Manual documentation must be made current in order to ensure the accuracy of the 1994 results. Accordingly, Newfoundland Tel is directed to file for the Commission's approval, by 10 July 1995, an update to its Manual reflecting all revisions to its tariffs, accounts and procedures, as well as any other changes relevant to the production of 1994 results. Copies are to be served on interested parties by the same date.

Newfoundland Tel is directed to include in the same update submission: (1) the explanations required by the Appendix to this Decision, (2) a modification to BSCC 6.029 Sales Expense study to provide further details with respect to the method used to associate time spent by BSC, (3) a status report on the improvements to the OTS records made to date, indicating which, if any, of those improvements could be adopted for 1994, (4) amended procedures to comply with the directions and determinations in Decision 94-24 that apply to Newfoundland Tel, and (5) a report on the specific steps being taken by the company on a going-forward basis to ensure that the CN and CT-MD categories do not remain in a shortfall position.

With respect to Newfoundland Tel's reports, other than the OTS report, the Commission grants final approval to the company's Revenue/Cost Matching methodology, and defers the company's implementation of the DDP for the development of Access sub-categories pending determinations, in the proceeding initiated by Implementation of Regulatory Framework - Split Rate Base, 1995 Contribution Charges, Broadband Initiatives and Related Matters, Telecom Public Notice CRTC 94-52, 1 November 1994, regarding categories within the Utility segment.

The Commission considers that the requirements for the filing of actual and forecast results and the audit, update and review processes followed by Bell, BC TEL, Northwestel Inc. and MT&T should apply to Newfoundland Tel. Accordingly, the Commission directs Newfoundland Tel:

(1) to file audited actual Phase III results for the calendar year 1994, together with an audit report, by 30 September 1995, and annually thereafter by the same date;

(2) to file forecast results as will be prescribed by the Commission in the fall of 1995 in relation to the establishment of contribution charges;

(3) to implement the update process established in Bell Canada and British Columbia Telephone Company - Phase III Manuals: Compliance with CRTC Telecom Public Notice 1986-54 and Telecom Order CRTC 86-516, Telecom Decision CRTC 88-7, 6 July 1988 (Decision 88-7), as revised in Telecom Letter Decision CRTC 89-26, 1 December 1989, and in Decision 94-24, and;

(4) to implement the audit processes prescribed in Decision 88-7.

With respect to the Phase III Manual review process prescribed in Decision 88-7, the Commission notes that its staff may conduct periodic reviews of the procedures contained in Newfoundland Tel's Phase III Manual.

Allan J. Darling
Secretary General

SUPPLEMENTARY SUBMISSIONS APPENDIX

A.Investment

BSCC 2.002 Operator Positions Investment

Indicate whether there is any investment associated with Directory Assistance switchboards/mechanized operator systems that relates to the CN category.

B.Revenues

1. Resale and Sharing (Item GT 40.4)

Explain why the company has included a Competitive Toll (Toll) classification for this service.

2. Interconnection with IXCs (Item GT 299.3)

Explain the rationale for classifying switching and aggregation charges and start-up costs to Toll, and explain why items 70.5 and 70.6 were omitted and remain unclassified.

3. Elevator Telephone (Item GT 330.12)

This service, which was approved effective 18 November 1993, appears to have been overlooked. Specify the company's proposed classification for this service.

4. Non-Basic Tariff - Digital Network Access

This tariff includes rates for Access, Link intra-exchange channels and a service charge for operating speed changes. Explain why the proposed classification does not include CN for the intra-exchange channels.

5. Non-Tariffed Services Classification

Explain the rationale for the proposed Access classification of radio telephone and high frequency radio services to Labrador.

6. Block Diagrams

(a) Clarify whether any modifications are required with respect to the submission of block diagrams related to mobile services.

b) Clarify whether an Access classification should be depicted in the block diagram with respect to Circuit Charges - Within an Exchange (GT 310).

(c) Confirm whether the block diagram with respect to Message Toll - WATS (GT 520) accurately reflects the Access portion.

C.Expenses

1. BSCC 6.004 Operator Services

Identify where expenses related to the Intercept function are recorded and how they are assigned. Describe the functions performed by the Labrador Agent and indicate whether they relate solely to Toll, or to both Toll and Monopoly Local.

2. BSCC 6.007 Business Office Expense

Justify the use of the service order study to assign telemarketing functions, as opposed to identifying and assigning specific telemarketing activities to BSCs.

3. BSCC 6.009 Information Technology

Justify the assignment of software rental based on Equivalent Staff Ratios, as opposed to an analysis of the charges to the account.

4. BSCC 6.012 Advertising

Justify the assignment of sub-account 664.2.106 Advertising - Sales Support expenses based on revenues, as opposed to a study approach similar to that used for other advertising expenses. Include in the response a discussion of the feasibility of assigning these expenses by analyzing individual invoices or charges to the account.

5. BSCC 6.015 Treasury and Financial Planning

Justify the assignment of working funds and bank reconciliation expenses to BSCs based on total company Equivalent Staff Ratios, as opposed to assigning them to Common.

6. BSCC 6.030 Mobile Services

Confirm whether all costs related to mobile services were transferred to Newtel Mobility by year-end 1993. Justify the assignment of these expenses based on BSC ratios developed from mobile services revenues, as opposed to using a study approach.

7. BSCC 6.039 Marketing Quality Program and Telepersonnel

Justify the assignment of these expenses to Common, as opposed to using the Marketing Department's Equivalent Staff Ratios.

8. BSCC 7.003 Custom Work Study

Justify the rationale for assigning Custom Work - Newtel Cellular to Common, as opposed to the Other BSC.